Sunday, April 25, 2010

Last month marked the tenth anniversary of the release of the acclaimed docudrama, Erin Brockovich, nominated for five Academy Awards and the source of Julia Roberts' first Oscar as best actress. Without PG&E in the role of real-life loathsome polluter, poisoning the small San Bernardino County community of Hinkley with hexavalent chromium over four decades and then covering it up, none of it would have been possible.

As the conservative New York Post observed, it was "the kind of stand-up-and-cheer movie Hollywood is supposed to have forgotten how to make."

Ever since his March 1 buffoonish boast to a Wall Street investor conference that Proposition 16 is really intended to "diminish" voting on who provides electricity, Peter Darbee undoubtedly has more time on his hands. Heeding his consultants' advice that, having gotten so far off-message, he might be a distraction from the $35 million propaganda effort to disguise the measure as protecting the taxpayer's right to vote, he has become the invisible man. He has abdicated any role in publicly explaining why voters should hardwire his company's business advantage into the State Constitution.

That's a little awkward for Darbee right now, as he waits out the May 12 shareholder vote on his Brobdingnagian 2009 compensation -- 74% above the median for large utility CEOs, according to the Wall Street Journal compensation survey, and even 8% above Goldman Sachs' CEO! As the business school textbooks say, public leadership is the corporate CEO's primary duty.

He might wisely use some of his freed up time to watch the Erin Brockovich DVD. Maybe twice ... a day.Why? Because some things are hard to change, maybe even impossible, like PG&E's arrogance in dealing with people its executives don't consider their social equals. Or the ease with which the company feels it can bend reality to its liking with just enough iteration and reiteration.

And because the toxins Darbee is disseminating through the airwaves and mailboxes of California may have an even more concentrated impact on his company's future wellbeing than those Ms. Brockovich discovered.

PG&E might well consider using the movie as an instructional video in what to avoid. Perhaps some future management regime will.

The Hinkley disaster resulted in a $333 million settlement by PG&E with more than 600 plaintiffs in 1996, at the time the largest settlement of a direct action lawsuit in history. PG&E had been using hexavalent chromium as a corrosion inhibitor in the cooling towers for its local gas compressor since 1952. The company disposed of the cooling water blowdown in unlined pools, which contaminated local groundwater, and by spraying it into the air, which created a toxic inhalant.

Hexavalent chromium had been known as a cancer-causing chemical since the 1920s. PG&E found levels in local wells 400 times above the EPA safety standard in 1965, but as late as the mid-1980s was downplaying the problem to Hinkley residents. The company claimed senior management had not been informed until 1987 -- in the words of the plaintiffs' trial brief, "The suggestion that senior management in San Francisco didn't know what was happening ... is the biggest lie of all."

PG&E circulated a misleading leaflet to the community claiming that its groundwater cleanup program would result in levels "that meet the very conservative drinking water standards set by the EPA."

"In addition, the form of chromium that will be left on soils after irrigation is nontoxic. In fact, chromium in this form is a naturally occurring metal that is an essential ingredient in the human diet, one that is often included in multiple vitamin/mineral supplements."

As the plaintiffs' trial brief put it, the leaflet might have invited a person to "sprinkle some on your morning cereal." In reality, concentrations of hexavalent chromium in the groundwater basin reached peak levels of 1,000 to 5,000 times the safe limit for drinking water and more than 50,000 times the safe level for inhalation.

Meeting with Hinkley residents in 1988, PG&E officials said there was "no risk at current levels" and "generally, site groundwater is good and suitable for drinking and agriculture." Responding to questions about "green swimming pool water" at local homes, company representatives said it was okay to swim in a pool where levels exceeded EPA limits because chlorine and other pool chemicals "kill any contaminants in the pool, including chromium." One PG&E official said that he and his children would gladly drink the local well water.

The tenacity of the Hinkley plaintiffs, once they were eventually aroused, is the sweeping theme of the Brockovich movie. What accounted for that doggedness? As a 1994 Fox News series capsulized in quoting one of the plaintiffs:

"They thought they were dealing with a bunch of dumb hicks, that's what I think."

In 2006, PG&E settled a similar gas compressor station lawsuit for $335 million with 1,200 plaintiffs from the working class town of Kettleman City, California.

So Peter Darbee, though temporarily quarantined by his political consultants, nevertheless manages to spew carcinogens into the political dialogue of California with saturation advertising unashamedly targeting an electorate of morons. He shared a few of his premises in his infamously gleeful rant to Wall Street investors:

"...one of the thoughts was we're aiming towards a June election and that it was a more favorable time to do it than as opposed to a November election."

"...it also occurred to us that people aren't very pleased with the job that government is doing these days in general, you know, across the board."

"So it was really a decision about could we greatly diminish this activity for all going forward rather than spending $10 - 15 million a year of your money ..."

"The answer was yes! The June timeframe looked ideal and in the context of everything that is happening with government today -- the dysfunctionality of it -- we concluded it was a very ideal time!"

What better opportunity to hypnotize the rubes into thinking they're voting to hold down taxes? Why not goad the Tea Party types into believing they can lock down socialist bureaucrats? And while you're rattling the wing nuts into feeling their very right to vote is at stake, why not slip in a new two-thirds majority requirement to build the walls around your captive customers significantly higher?

But Darbee's fundamental miscalculation may be his proclivity to overkill. Trying to fool people is one thing, rubbing their noses in it is a completely different proposition. Is it wise to be so blatant about the wad one monopoly is willing to spend to protect "the Taxpayers Right to Vote"? Is anyone gullible enough not to realize it's customer money which is paying for this campaign? After the average voter has received 6 mailers and been forcibly exposed to 17 television ads and even more radio spots, is the likely reaction one of gratitude for PG&E's selflessness? Or rage?

Sunday, April 18, 2010

Five years is a long time on Wall Street. It's a long time at PG&E. Peter Darbee has been CEO of PG&E Corporation since 2005. He was an investment banker at Goldman Sachs from 1989 to 1994.

It's said that you can take the individual out of "Goldmine Sachs" but you can't take "Goldmine Sachs" out of the individual.

And in the several days since the SEC launched its historic civil fraud action against Goldman, it's been difficult to ignore some commonality between two tone-deaf CEOs having a difficult time keeping their companies out of the ditch.

Each has an odd, mildly blasphemous way of mixing divine guidance with his pursuit of Mammon. A profile in the Sunday Times of Goldman's CEO, Lloyd Blankfein, 55, put it bluntly:

An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker "doing God’s work."

The British newspaper characterized Goldman Sachs as a cultish teamwork environment with insecurity hardwired into the system. "There is a deep and constant paranoia about everything we do," one senior manager approvingly said. What drives this process?

One former Goldman banker describes the culture as "completely money-obsessed. I was like a donkey driven forward by the biggest, juiciest carrot I could imagine. Money is the way you define your success. There’s always room — need — for more. If you are not getting a bigger house or a bigger boat, you’re falling behind. It’s an addiction."

The 56-year old Darbee, more than a decade out of Goldman at the time, struck a tone of piety in his inaugural interview as PG&E's CEO in 2005, telling the San Francisco Chronicle that "It's the Ten Commandments that drive my world view."

"You don't lie. You don't cheat. You don't steal. You don't commit adultery ... If you don't have the right set of values in place, you're not going to get anywhere."

Darbee has an awkward and conflicted attitude regarding his own compensation.

On the one hand, as reported here and here, he massaged PG&E's internal system to produce a $10.6 million gusher for himself in 2009 -- that's 74% above the median for large utility CEOs measured in the Wall Street Journal's annual compensation survey. And 8% above Blankfein's 2009 take!

"I think it’s fair to say that some earlier administrations here at the company really focused on “let’s make money”. We found that approach didn’t inspire employees, it didn’t cause people to admire and respect the company as much, and it didn’t help PG&E attract new employees."

"I think the clear message is you want more from management and more from your leaders in terms of identifying the vision for the company."

As the newspaper account put it, "Turning things around, he said, hinges on restoring a sense of integrity within the company and, in turn, winning back the trust of customers."

In words that may ring particularly loudly for Darbee in today's Proposition 16 context, the Chronicle reported:

In his speech to employees, he said he wants PG&E to "eliminate the term 'ratepayer' from our vocabulary." Instead, he wants workers to always say "customer."

"A customer is someone that we have to go out and ... win day in and day out," Darbee explained. "A ratepayer suggests someone who is the prisoner of a regulated utility."

What to make of these remarks from the sole sponsor of a $35 million propaganda campaign carefully designed to intentionally mislead said "customers" into building an even higher wall around their captivity? Not to mention that, to date, his cynical defiling of the California initiative process has been denounced by every newspaper editorial board to address Proposition 16.

In Darbee's own words from that prescient 2005 interview:

"It's going to be a big job," he acknowledged. "But over a period of three years, five at the latest, my objective is for the customers of this state to say, 'Wow!'"

Thursday, April 15, 2010

By the jaundiced standards of California's initiative politics in 2010, it barely deserved mention. But there it was, in a small blog post this week in the Los Angeles Times:

When the Los Angeles County Democratic Party deposited a $175,000 check from PG&E earlier this month, quite a few in the political world took notice -- especially considering the fact that the money arrived only weeks before the county party was set to stake out its position on a June ballot measure, Proposition 16, put on the ballot by the utility company.

But every once in a while, money doesn’t prevail in politics. On Saturday, the county party’s ballot measure committee voted unanimously to oppose the PG&E-backed measure, said Chairman Eric Bauman.

Rescuing this episode from the mundane movie-script narrative of just another illicit transaction gone bad on the mean streets of L.A., Bauman had a history lesson for Peter Darbee:

"Have you ever heard of Jesse Unruh?" asked Bauman. He was referring to the former Assembly speaker who once famously said, as Bauman paraphrased it: "If you can’t take their money, drink their liquor and spend time with their women, you shouldn’t be in this business."

Actually, if Unruh had ever used the euphemism "spend time with their women" he probably would have been unseated by his caucus.

But if Darbee is ever put under oath -- either at a shareholders meeting, a ratepayer tribunal, or the pearly gates -- one of the first inquiries might be, "Just what were you trying to accomplish, miles outside your service territory, with a wad of money like that?"

Perhaps it was part of his "education" effort for Proposition 16. As he explained at his now famous March 1, 2010 Wall Street investors conference:

... in the preliminary voting, polling on this, before education ... it didn't quite get to 51% but I think it was high 40's. After their education, the numbers became very strongly and positive in the favor of an initiative. Voters liked it.

Not content to rely on his No Lie Left Behind radio and television advertising blitz, Darbee has brought in the heavyweight "education" specialists that assemble -- for a price -- political slate cards. The Sacramento Bee reports that he's already shelled out hundreds of thousands on some 20 such efforts. Those must be intended for voters unable to digest the educational materials Darbee is stuffing into their mailboxes.

And they are pretty indigestible. The headlines blare: "It's hard to believe but right now voters have no say when local governments spend billions of dollars to get into the business of providing electricity."

Hard to believe because it's untrue. Local government officials are elected by voters. Municipal utilities are formed by votes of the people. Annexations require votes. Which part of "no say" does Darbee no comprende? What causes PG&E conniptions is that despite the many procedural hurdles of existing law, an unsettling number of its customers keep trying to break away.

So rather than make the difficult case that captive customers deserve even heavier shackles (like a required two-thirds majority for escape), Darbee has opted for the appealing target of the spendthrift bureaucrats. Jack Stewart, head of the California Manufacturers and Technology Association -- representing Darbee's largest customers -- is having none of it.

Making note of PG&E's 11.35% guaranteed return, Stewart told the Bee, "This initiative takes that guaranteed profit to a guaranteed monopoly. We don't think that creating a monopoly that is even more difficult to penetrate is good for ratepayers."

(Photo credit: Darbee, Genesis Photo Agency)

Sunday, April 11, 2010

The lead sentence in last Friday's San Francisco Chronicle article (headline: "PG&E Must Stop Threats To Public Power Agencies") hints at the dilemma Peter Darbee's political recklessness has created for his company and its heretofore guardian angels, the California Public Utilities Commission:

California energy regulators delivered a rare rebuke to Pacific Gas and Electric Co. on Thursday, banning some of the hardball tactics the utility has used in its efforts to derail Marin County's new public power agency.

Darbee's brazen political overreach in launching Proposition 16, his sole-sponsored assault on the California Constitution and the historical prerogatives of the CPUC, may be slowly awakening Commissioners long criticized for carrying styrofoam police batons engraved with the mantra "can't we just get along?"

Take, for example, the last compensation scandal to hit PG&E, the notorious $84.5 million "retention bonuses" paid to 17 executive worthies as PG&E emerged from bankruptcy in 2004. In extraordinary wording that still reads like comic opera Pontius Pilate, the CPUC observed:

These bonuses vested only days after PG&E Corporation (the holding company), PG&E (the utility), and the Commission entered into a Modified Settlement Agreement regarding PG&E's emergence from bankruptcy. The size and timing of these bonuses raised concerns regarding ratepayer impact and public policy.

We have given the issue special attention. We find that none of the $84.5 million has been, or will be, charged to ratepayers. We adopt additional accounting and reporting measures to further ensure that the $84.5 million is charged to shareholders, not ratepayers. We are appalled at the size of the award, and encourage the senior executives to voluntarily return any amounts not needed to meet the program's purpose or that are unreasonable or inequitable. The matter is now in the hands of the 17 senior executives, PG&E's shareholders and the California Legislature.

Historical note: Darbee was PG&E Corporation's Chief Financial Officer before, during, and after the bankruptcy fiasco; his predecessor as CEO of the holding company (who grabbed a bonus of more than $17 million for himself) was named by BusinessWeek as one of the worst CEOs of 2003; the bankruptcy deprived shareholders of their dividends for some 4.5 years and sentenced ratepayers to a decade-long special bailout surcharge; and ... drum roll ... none of the $84.5 million was ever returned. Darbee's obtuseness may blind him to the box into which his Proposition 16 gambit has placed his CPUC overseers. Exactly where did he get his $35 million campaign war chest?Accept the common view and he's misappropriated ratepayer funds, meaning that the CPUC has a major infraction on its hands. Accept Darbee's rationale that he's using shareholder funds, and the CPUC rate-setting generosity looks grossly negligent.

Darbee's blunderbuss approach in Marin has now triggered a CPUC resolution that can easily be dismissed as just another regulatory tsk tsk, but which crosses an unmistakable Rubicon if anyone at PG&E is paying attention. Buried within the gentle bureaucratese admonishing PG&E for what are effectively acts of bribery (to induce the City of Novato not to join the Marin Energy Authority) and extortion (threatening not to supply electricity to the Marin Energy Authority), the CPUC resolution lays down a marker:

... PG&E contends that the Commission lacks the authority to oversee the utility's use of shareholder funds for competitive activities ... We are not persuaded ... The Commission does not lose its authority to regulate a public utility's activities, merely because the utility accounts for the expense of conducting those activities "below the line", i.e., as a shareholder expense.

So facing his own compensation firestorm for the ill-timed decision to pay himself 8% more than Goldman Sachs paid its CEO (and 74% above the median for large utility CEOs) in 2009, Darbee now finds that his lack of political acumen may have finally aroused the attention of creatures he should have left asleep.Were he more a student of California history, he would realize that the regulatory agency he has long attempted to flout and the initiative process he is currently choosing to debase share a certain common origin.

(Photo credit: Darbee, Genesis Photo Agency)

Sunday, April 4, 2010

In the 48-hour period clustered around April Fool's Day, Peter Darbee aired the first of PG&E's big lie "taxpayers right to vote" television ads (one month after confessing to Wall Street that the motivation behind Prop. 16 is to "diminish" such voting); filed PG&E's proxy statement disclosing an even murkier process on his board's Compensation Committee than the preliminary proxy filing had revealed; and suffered through the annual Wall Street Journal compensation survey showing his 2009 compensation to be 74% above the median for utility CEOs.

The WSJ compensation study of 200 companies was conducted by the Hay Group, and showed that several of Darbee's more prominent peers -- John Rowe of Exelon, and Jim Rogers of Duke Energy, for example -- were paid materially less than Darbee despite running larger, more complex companies: 15 % less in the case of Rowe and 74% less in the case of Rogers. As reported previously, Darbee's $10.6 million take in 2009 was actually 8% more than Goldman Sachs paid its CEO, Lloyd Blankfein.

In contrast to PG&E, none of the utilities included in the compensation survey benefits from a bankruptcy settlement that obligates its state regulator to maintain its credit rating in the single "A" category -- a material reduction in corporate risk exposure that creates a more mundane context for PG&E's financial results than the Master of the Universe paycheck for Darbee would suggest.

And the March 31 final proxy makes clear that the road to getting there was, well, perhaps even more interesting than the March 8 disclosure suggested. It turns out that the replacement consultant -- brought in by the PG&E board's Compensation Committee in midstream after the Committee determined that its original "independent" consultant "no longer met" the Committee's conflict of interest standard -- didn't actually get involved with determining Darbee's 2009 hoard. As the new disclosure states, the replacement consultant

provided advice regarding executive and non-employee director compensation trends and policies with respect to the amount and form of compensation, and assisted with the Committee's compensation risk assessment, but did not advise the Committee with respect to compensation actually paid in 2009 to PG&E Corporation and Utility officers whose compensation is reported in the tables in this Joint Proxy Statement ...

Which left the Compensation Committee, in the course of its four meetings during the year, either in the hands of its conflicted earlier consultant or completely on its own. As previously reported, none of the four members of the Committee has any experience in the regulated electricity or natural gas utility business and two (including the chair) are phoneboy cronies of Darbee from his PacBell days.

Random fact: the three telecommunications industry CEO's identified in the Wall Street Journal compensation survey were paid an average of $15.6 million in 2009.

In the same bipolar logic that puts a "taxpayer right to vote" campaign slogan on top of its CEO-acknowledged aim to "diminish" voting, the March 31 proxy proudly proclaims that beginning this year PG&E has "voluntarily agreed to provide shareholders with the right to cast an advisory vote" on executive compensation. Darbee seems to have forgotten that this measure was forced on him by CalPERS and other activist investors who passed a "say on pay" resolution at the 2008 shareholder meeting over management's objection.

With mandatory shareholder "say on pay" rights prominently included in the financial regulation bill currently pending in the U.S. Senate, the PG&E vote at the May 12 shareholder meeting is likely to attract attention as an indicator of whether such rights are a meaningful reform to curb excess or a cosmetic device to rubberstamp management recommendations.

Darbee probably views the upcoming low-turnout shareholder vote with the same shooting-fish-in-a-barrel bumptiousness as he does the upcoming low-turnout vote of the California electorate on Proposition 16. As hinted at in the March 31 proxy, the process is susceptible to the same dark arts of manipulation, albeit at a lower direct expenditure than the $35 million his political consultants have demanded for the June 8 smoke and mirrors.

But shareholders may be grouchy about their measly, cumulative 5.6% Total Shareholder Return (price appreciation and dividends) in the three-year period ended December 31, 2009 and resist being fed the phony comparisons that suggest this represents a stunning success. The arithmetically inclined may actually compare their returns to the 32.2% jump in Darbee's annual compensation from 2006 to 2009.

About Me

I was dumbstruck when I read that PG&E's board has authorized spending up to $35 million on this initiative. The local governments, municipal utilities, and irrigation districts who are its targets are prohibited by law from spending anything to oppose it.
California's investor-owned utilities face a Himalayan task in modernizing our electricity system and building the infrastructure necessary to serve a growing economy. They ought to focus on that, rather than manipulating the electorate to kneecap their few competitors. Has there ever been a time when we needed greater downward pressure on electricity rates?
Perhaps I can contribute to stopping this outrage by assembling this information. Won't you help by using email or the "Share" button above to disseminate each post as broadly as possible?